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Colón's upturn
Business Latin America / June 4, 2001

By Larry Luxner

Panama's Colón Free Zone -- the largest merchandise distribution center of its kind in Latin America -- is beginning to recover from a slump triggered by economic crises in Colombia, Ecuador, Venezuela, Brazil and other important free-zone customers.

In the 12 months ending February 2001, the zone imported $4.4 billion and re-exported $5.1 billion worth of goods, a 5% increase over the year-ago period.

That's welcome news for the 1,600 companies within the zone's perimeter, who have suffered because of a sharp drop in business from Colombia, which alone accounts for up to half the zone's trade. Business has been so bad that Panama's leading domestic airline, Aeroperlas, was recently forced to slash the number of flights between Panama City and Colón from 28 to 12.

In the past year, however, the Colombian economy has picked up. Higher world oil prices have also boosted the economies of nearby Ecuador and Venezuela. And the recent completion of a huge cruise-ship port is already luring thousands of cruise-ship passengers to Panama's Atlantic coast, further improving prospects for Colón, long one of Panama's poorest cities.

The 1,070-acre Colón Free Zone, known locally as "an island of wealth surrounded by a sea of poverty," was established over 50 years ago and today accounts for 8% of Panama's GDP. It attracts 300,000 visitors a year and is dominated by sales of electronic appliances, clothing, textiles, watches, shoes, jewelry, perfumes, cosmetics, pharmaceuticals, liquor and tobacco.

Even so, Guillermo Ronderos, executive director of the World Trade Center Panama, says the free zone could suffer because of a recent crackdown on contraband by Colombia, the zone's biggest trading partner.

Some Panamanian politicians have also expressed concern that an eventual Free Trade Area of the Americas would make the Colón Free Zone obsolete, since without duties and tariffs the zone's relative advantages would disappear.

But Alberto C. Motta Jr., director of Motta Internacional S.A. and one of the zone's biggest companies, says he isn't worried, because most of the products sold there are from third countries and wouldn't enjoy FTAA benefits anyway.

"I believe the Colón Free Zone will always exist because it's a distribution point for many companies," he argues. "For example, Sony Corp. brings in its merchandise from the Far East, warehouses it in the zone and then dispatches it to Chile, Peru or wherever they have agents. So instead of keeping high inventories in those countries, Sony stores the goods here in Panama, tax-free and duty-free."

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